Fels report unveils roadmap highlighting Australian consumer rip-offs

Occasionally a piece of research comes along that identifies all of the things that are going wrong in one easy summary.

So, it is no surprise that the founding chair of the Australian Competition and Consumer Commission, Allan Fels, produced just such a work when he looked into the practices of Australia’s highly concentrated retail sector, including supermarkets, airlines, energy providers and banks.

After a lifetime of experience keeping a watchful eye on pricing which started in the early 1970’s, the veteran economist has produced a meticulous look into how Australians are subjected to price gouging and understandably did not like what he saw.

Business behaviours wrong but not illegal

What is really important to note is that many of the business behaviours consumers are very familiar with are not actually illegal, however the Fels report suggests it would be fast and relatively easy to give the ACCC more powers to be handed a big stick to even break up big businesses where a court had found there was a serious breach of competition law.

“Changes to the competition law could be done very quickly,” Mr Fels said.

“That could be done, introduced into parliament within two or three months.”

While the report which produced 35 recommendations was written for the ACTU, it was still conducted independently and is now being closely examined by the Federal Government and it would not be a surprise if at least some of it resulted in a change to competition law.

Tactics we all know and hate

One of the important services the report has provided is a summary of the major tactics used to jack up consumer prices – strategies that will be very familiar to most consumers and many of which can only flourish due to a lack of competition.

Competition is restricted in many parts of the Australian economic landscape, with cosy duopolies able to control prices without feeling too much competitive pressure.

A great example he gave is Qantas, which dominates the airline duopoly and in December 2022 was able to reduce supply while increasing prices without suffering any major loss of market share – something that probably increased inflation at that time and may have impacted decisions by the Reserve Bank to raise interest rates.

Some of the pricing strategies the report outlines are worth studying further so that consumers can identify when they are being used and hopefully take action to prevent being ripped off.

Excuse-flation runs rampant

The first is excuse-flation, which happens when businesses use general inflation as a camouflage for bumping up prices.

Some of the cover stories used to justify higher prices include pandemic, the Ukraine conflict, or disruptions to supply chains.

Consumers tend to just accept the excuse but there may actually be no justification for it.

Another common tactic, mostly used for online bookings of various types is drip pricing.

Drip pricing costs plenty

This happens when a business advertises what appears to be a keen price.

However, when you proceed through the online booking, more charges are gradually revealed and added to the price which will often be much higher once the often essential “extras’’ have all been added in.

Consumers are reluctant to pull out of the process and often still buy the product or service because they feel committed to the purchase and don’t want to go through another booking process and waste more time.

Airlines and accommodation providers are perhaps the most common examples but drip pricing is becoming much more common across many products.

Complicated pricing thwarts comparisons

Confusion pricing is another example that is most commonly used in areas such as mobile phone plans but also many other products and services.

Again, consumers might be attracted by a low price but are then confronted by a raft of complex pricing structures and plans that make it very difficult to compare like for like and also often add in unwanted extras as part of the “plan”.

This makes it very difficult to compare one complex plan with another offered by a rival and can result in a long-term commitment to a product that features unnecessary extras that will never be used.

Rising like a rocket, falling like a feather

Another example that Mr Fels pointed to is what he called “rockets and feathers” pricing.

This sees prices rocket up when input costs rise but then drift down very slowly over time like a feather even long after the rising cost has disappeared at the wholesale level.

Loyalty will be penalised

Some products and services set initial prices low, but then sharply increase as the years roll on when it is more difficult for consumers to detect the changes or renegotiate terms.

The inquiry pointed towards banks, insurers and energy companies as some of the major culprits of using a customer’s loyalty against them.

No deals for you

This practice allows companies to charge vastly different prices for near identical products and services, evident among medical specialists and in prices charged by banks that offer better rates to customers likely to leave.

The inquiry noted there was a growing concern that digital platforms, drawing on detailed customer data, can maximise profits because they know how much someone is willing to pay for a particular item.

Hopefully the report will help customers directly to identify the increasingly sophisticated pricing strategies used to bamboozle them and with some good luck will prompt some long overdue improvements to Australia’s competition laws to put more downward pressure on prices.